China and the World of Business • China Business and the World

In a loosely worded statement released March 20, the Beijing Administration for Industry and Commerce announced a ban on outdoor advertising in the capital that “promotes hedonistic or high-end lifestyles.” The statement was specific on three counts: a list of words that were banned from usage (“royal,” “luxury,” “supreme,” etc), a 30,000 RMB fine for violating the edict, and a deadline of April 15 to comply.

My first concern was that this was part of a move against luxury goods generally, and one reporter I spoke to even suggested that this was a veiled form of protectionism to speed the emergence of Chinese luxury brands. But after spending much of the last few weeks digging into this issue, I think something different and more fundamental is at work here.

All Luxury, No Class

What the Party is concerned about is not luxury, but class. Whatever compromises have been made with Marxist-Leninist-Maoist doctrine over the past 34 years, the nation’s leaders are not prepared to allow China to become – or, more important, appear to become – a society divided by class as it was before the revolution. Allowing people to get rich is acceptable, as long as the Party can cling credibly to a claim that New China is fundamentally an egalitarian society.

The problems begin when people start believing, to paraphrase Orwell, that some pigs are more equal than others. When a poor farmer walks through the nation’s capital and finds himself surrounded by advertisements for goods and homes he will never be able to afford, or when he sees the owner of the Ferrari parking illegally and getting away with it, the farmer is going to start feeling excluded and resentful. Marx called this “alienation,” and alienation fuels resentment, frustration, anger, a jump in property crime, and even unrest.

Dump Your Billboards, Keep Your Stores

What the policy does not appear to be is a move against luxury goods or their manufacturers. In fact, the day after BAIC released its statement, Minister of Commerce Chen Daming told attendees at the 12th China Development Forum that China will resolve the price discrepancies between high-end goods in China and the same items sold overseas. Far from seeking to inhibit the sales of luxury goods, Chen’s ministry is looking for ways to make them cheaper for Chinese to buy here at home.

This is a smart move. A recent report from CLSA Asia-Pacific projected that by 2020 Chinese consumers will snap up over 44% of the world’s luxury goods. As more Chinese who can afford luxury products are able to travel abroad, the government has a choice: keep taxes high on luxury goods and force prosperous consumers to buy knockoffs or, more likely, go abroad; or cut the luxury taxes and take the increased VAT revenues and the increased employment in retail and distribution. If 44% of the world’s luxury goods are coming here, the latter move sounds like the right one.

“A Man’s Home is his…” Oh, Wait…

Casual research suggests that local real estate barons will be more hurt by these restrictions than foreign luxury brands. First competing with each other to see how many Chinese McPenthouses and McMansions they can squeeze onto a hectare of land, developers then battle to see who can best liken his cookie-cutter rabbit warrens to Buckingham Palace in a hyperbolic war of words played out on billboards and glossy handbills. Indeed, while all types of luxury products seem to use outdoor, high-end real estate appears to take up the plurality of luxury outdoor ads in Beijing.

Contrast this seeming oversupply of high-end (and to most Beijingers and migrant workers, unaffordable) Sino-chateaux with the government’s growing concern about a shortage of affordable housing in the capital, and the specific move against outdoor seems more understandable. Indeed, one could argue that the Party is more concerned about the housing issue, but again, the question appears to be much larger.

The Problem is the Sizzle, Not the Steak

It is likely, then, that we are watching the early salvoes in a long-term Party campaign not against luxury goods, but against overt privilege and ostentation. In addition to the new strictures on advertising luxury goods, Beijing’s traffic police have been ordered to start getting tough on drivers of luxury vehicles who are traffic and parking scofflaws. The messages are clear: go ahead and sell luxury goods, but do not do so in a way that reminds China’s masses that many of their comrades live lifestyles they can never hope to afford. You are free to buy and drive a Mercedes S600, but you are not entitled to any special consideration as a result.

Given the political climate, the campaign is probably just building steam. Wen Jiabao’s public comments in March regarding the 12th Five Year Plan’s focus on “resolving unfair income distribution” suggest policies that will be as much about addressing appearances of inequality as about redistributing wealth. Three matters will be important to watch in the coming months:

The extent to which the BAIC enforces its own edict, something we will know based on what is showing up on billboards in the capital;

Whether this effort will end with Beijing, or whether the State Administration for Industry and Commerce starts encouraging other cities to take similar measures (I’m thinking Shanghai, Guangzhou, and the other coastal metropolises);

Whether the strictures on outdoor ads are then extended to television, print, radio, or other media.

Movement in any of these directions will signal a widening of the campaign, so luxury marketers and media companies would be wise to keep a careful watch over how this evolves. This is may turn out to be one of those years in China when flexibility will be a marketer’s most treasured virtue.

In the longer term, though, this may mark the beginning of a larger change that may force everyone selling expensive baubles in China to reconsider the way those goods are marketed.